Apparatuses, methods and systems for a tracking platform for standardized instruments

Abstract

A computer implemented method for a tracking platform comprises receiving a plurality of data records for the financial instrument; determining a number of units of the futures contract associated with a starting capital amount based on the near settlement price of the data record with the earliest timestamp; processing the data records in sequence based on the timestamp by setting a value for a roll indicator; updating the number of units of the financial instrument if necessary; and determining a profit and loss (“PNL”) for the data record based on the number of units of the financial instrument and a change in settlement price; calculating a tracking value for the financial instrument based on the PNLs of the processed data records; and generating at least one financial instrument having a value that is determined from the calculated tracking value.

Description

BACKGROUND[0001]A futures contract provides a mechanism to buy or sell a particular commodity or asset (an underlying asset) at a predetermined price at a specified time in the future. Because futures contracts specify many of the contract conditions (e.g., particular terms such as units, or the underlying asset), they are standardized contracts. Some users buy (or sell) futures contracts because they wish to obtain (or deliver) the underlying asset at the price and time specified in the standardized futures contract. However, other users buy (or sell) futures contracts with the sole intention to sell (or buy) the futures contracts to earn profits based on a price movement of the futures contracts. Others buy or sell futures contracts to hedge or offset risks. Regardless, there is a large class of users that engage in futures trading who have no intention or desire to acquire or sell the underlying asset. For these users, many aspects of futures trading represent computational, logi...

AI Technical Summary

Benefits of technology

The patent describes a tracking financial instrument that can automatically track even small units of a target futures contract. This means that an asset manager doesn't have to constantly send electronic data transaction requests to the exchange computing system, which reduces network traffic and processing load. The instrument allows access to markets without the need to invest in physical futures, which can save time, money, and resources. Overall, the invention improves the efficiency and accuracy of tracking the target futures contract.

Problems solved by technology

For these users, many aspects of futures trading represent computational, logistical and / or administrative difficulties.

Rolling futures contracts can be a computational burden on computer systems of traders who simply want to participate in futures contract trading as asset managers, e.g., traders who do not want to actually take delivery of, or deliver, an underlying asset.

An exchange computing system that lists futures contracts does not typically allow traders to buy or sell fractions of futures contracts.

If a trader has an influx of additional cash to be invested, he / she may not be able to allocate all of that cash in the futures contract.

Many other inefficiencies which will be described in further detail below make futures contract trading difficult, inconvenient, and computationally expensive for asset managers who have no desire to buy or sell the underlying asset of a futures contract.

Exchange match engine systems may be subject to variable messaging loads due to variable market messaging activity.

With limited processing capacity, high messaging volumes may increase the response time or latency experienced by market participants.

In addition, it may be appreciated that electronic trading systems further impose additional expectations and demands by market participants as to transaction processing speed, latency, capacity and response time, while creating additional complexities relating thereto.

However, messages, whether MBO or MBP, generated responsive to market impacting events which are caused by more than one order, such as a trade, may require the transmission of a significant amount of data to convey the requisite information to the market participants.

This may result in penalizing the trader who makes an errant trade, or whose underlying trading motivations have changed, and who cannot otherwise modify or cancel their order faster than other traders can submit trades there against.

Furthermore, while it may be beneficial to give priority to a trader who is first to place an order at a given price because that trader is, in effect, taking a risk, the longer that the trader's order rests, the less beneficial it may be.

However, a trader who took a risk by being first to place an order (a “market turning” order) at a price may end up having to share an incoming order with a much later submitted order.

This results in an escalation of quantities on the order book and exposes a trader to a risk that someone may trade against one of these orders and subject the trader to a larger trade than they intended.

In the typical case, once an incoming order is allocated against these large resting orders, the traders subsequently cancel the remaining resting quantity which may frustrate other traders.

In those markets, the failure of one participant can have a ripple effect on the solvency of the other participants.

Conversely, CME's mark-to-the-market system may not allow losses to accumulate over time or allow a market participant the opportunity to defer losses associated with market positions.

Oil refineries may trade a crack spread to hedge the price risk of their operations, while speculators attempt to profit from a change in the oil / gasoline price differential.

However, identifying implied opportunities may be computationally intensive.

The creation of implied orders increases the number of tradable items, which has the potential of attracting additional traders.

In some cases, the outright market for the deferred month or other constituent contract may not be sufficiently active to provide market data (e.g., bid-offer data) and / or trade data.

As an intermediary to electronic trading transactions, the exchange bears a certain amount of risk in each transaction that takes place.

If any one of the queues or components of the transaction processing system experiences a delay, that creates a backlog for the structures preceding the delayed structure.

For example, if the match or transaction component is undergoing a high processing volume, and if the pre-match or pre-transaction queue is full of messages waiting to enter the match or transaction component, the conversion component may not be able to add any more messages to the pre-match or pre-transaction queue.

For example, using an incorrect rate would cause a tracking error between the tracking instrument and target futures contract.

These types of indexes lack transparency, require multiple data inputs on a fixed interval, and take time and a large number of computing cycles to calculate.

As described above, rolling traditional futures contracts can be burdensome on traders who do not wish to actually buy or sell an underlying asset.

In addition, traditional futures contracts can be difficult to track, or mimic.

However, the use of such financial instruments typically results in tracking error, which is the difference between a futures contract and a financial instrument that tracks the futures contract.

However, analysis of the SPY and the S&P 500 shows that SPY does not always track the S&P 500 index perfectly, e.g., because of management fees, or supply and demand conditions.

Accordingly, the manager who attempts to track a futures contract using traditional financial instruments continuously needs to manage the financial instrument's position (e.g., the SPY's position) so that it closely tracks the underlying futures contract (e.g., the S&P 500 index), which creates computational and logistical burdens on the manager's computing system.

In addition, even if a manager constantly adjusts positions in a financial instrument to track a target futures contract, as the value of the target futures contract changes there may be a leftover dollar amount that cannot be invested in the target futures contract, e.g., fully invested into a whole, non-fractional number of futures contracts because the exchange computing system typically would not support the purchase of fractional futures contracts.

Because an exchange computing system that offers a standardized contract typically does not allow trading of fractional units of a target futures contract, there will likely be idle cash left over when attempting to buy or sell a financial instrument that tracks the target futures contract.

When an asset manager is investing millions of dollars across a portfolio of thousands of different financial instruments, the number of electronic data transaction request messages that must be sent to the exchange computing system to invest unused cash balances can contribute to network congestion and overuse of computing resources.

For example, it is currently difficult to compare the performance of gold futures contracts to crude oil futures contracts over a given time period.

Additionally, the illustrations are merely representational and may not be drawn to scale.

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